Potential Problem with letting valuation

Tassotti

Arch-Angel wrote:

1 - As a general rule, yes, house prices do rise in the fullness of time. However, for you to say "In 15 years, the value will have at least doubled from today's price." is nothing short of a guess

2 - Holding a BTL with an IO mortgage, trapped in negative equity, with house prices now far more affordable resulting in more rental voids....a guess I admit - but this is the worst case scenario. How would the OP - or indeed anyone who has bought BTL in the last 2 years or is planning to do so - manage in such a situation?

3 - Or do you simply wish you could raise your rents by 20%??

1 - Admittedly, saying prices will double in 15 years is a guess (a conservative guess) Probably triple

2 - See my previous post " Property investors should take any interest rate rises/price falls into account, and plan for this."

3 - Yes. I believe that rents should rise at the same rate as the property value (but not drop if prices do). But then i would say that wouldn't I?

Tassotti

libitina wrote:

Past performance is no guarantee of future performance. :rolleyes:

Well if that is the case, then there will be no crash either.

libitina_2

Tassotti wrote:

1 - Admittedly, saying prices will double in 15 years is a guess (a conservative guess) Probably triple

:rotfl:

Well if that is the case, then there will be no crash either.

True, you could also say that.

Consa

I think you'll find that most BTLetters use IO mortgages

haha! do they really, tell me you are joking

In 15 years, the value will have at least doubled from today's price.

Or it could have halved, take a look across the pond

Property investors should take any interest rate rises/price falls into account, and plan for this.

What scenario have you planned for??

Rents need to rise at least 20% IMO

Or they may well come under more pressure for a decline, wasn't the amount of BTL purchases at an all time high?? with the massive oversupply I think they may come under increased pressure

mystic_trev

Tassotti wrote:

1 - Admittedly, saying prices will double in 15 years is a guess (a conservative guess) Probably triple

Utter tripe! If people can't afford to buy at todays prices, who's going to buy them then? Poles on a minimun wage!?

Arch-Angel

Tassotti wrote:

1 - Admittedly, saying prices will double in 15 years is a guess (a conservative guess) Probably triple

2 - See my previous post " Property investors should take any interest rate rises/price falls into account, and plan for this."

3 - Yes. I believe that rents should rise at the same rate as the property value (but not drop if prices do). But then i would say that wouldn't I?

1 - And you're basing this on what? Wishful thinking? House prices could half in 5 years and take 10 years to return to their current levels. Wishful thinking? Perhaps - but is it reasonable to expect house prices to continue rising? Or - given that many economists are expecting more interest rate rises - will house prices drop?

2 - Good advice. But what would you suggest is good planning for the OP to benefit from? What plans do you have in place?

3 - I suppose you would say that!! But given the competition in the rental market the only way to increase your rent is to have frequent short-term tennants. More income perhaps, but also increases your chances of getting the tennant from hell. The vast majority of LL's (that I know or post on fourms) would much prefer long-term stable tennants who they know are not going to trash the property.

clutton_2

20% rent increase per annum, is a totally unrealistic goal - incomes go up by a much tinier % - possibly by the same rate of % inflation increase, IF that, - rents need to go up less than that for them to remain affordable. Rentals achieveable are in direct proportion to local wages and annual rates of wage increase.

realwildone

HAHAHA. This guy has as much commen sense as one of the zombies walking the malls in Dawn of the Dead.

must follow everyone else to food

RHemmings

clutton wrote:

20% rent increase per annum, is a totally unrealistic goal - incomes go up by a much tinier % - possibly by the same rate of % inflation increase, IF that, - rents need to go up less than that for them to remain affordable. Rentals achieveable are in direct proportion to local wages and annual rates of wage increase.

Saying that house prices will double in the next 15 years is a guess. So let's look at what that would mean. That would be inflation of 4.73% per annum. But this means absolutely nothing unless we know what wage inflation is going to be. If we have utterly massive inflation then wages will streak ahead. And a house at twice current prices may be extremely cheap. Look at Zimbabawe as an example. 1000% inflation.

On the other extreme, if wages stay flat, then claims that house prices will double would be ridiculous. Current prices are at the limits of affordability, and double current prices will be unthinkably unaffordable.

So what we want is an estimate of real house prices in 15 years hence. At present we have historical highs. Why should house prices maintain this high real level and be similarly high in 15 years time. Seems unlikely. So houses as an investment are unlikely to beat inflation. If property doesn't beat inflation, it seems like a poor investment.